Attention has been shifting to the Federal Open Market Committee to see what the future holds for the course of monetary policy. Many are worried about the future after the debt ceiling debate, the credit rating drop for the US, and the debt concerns in the eurozone.

Investors are worried about the solvency of many European governments and the future course of U.S. fiscal policy, especially after the protracted debate on the debt ceiling.

Now attention is focused on the Federal Open Market Committee for clarity regarding the future course of monetary policy.

But instead of providing clarity, the members of the FOMC are debating the fundamental questions of what the Fed can and should do to promote economic recovery.

The recent FOMC majority decision to keep interest rates near zero until at least mid-2013 will extend the Fed's easy monetary policy to cover a period of more than five years.

The duration and degree of monetary easing is unprecedented in the history of the U.S.

And in doing this, the Fed is underestimating the risk of higher inflation and overestimating its ability to bring the economy out of recession.

The majority view on the FOMC is flawed and carries serious downside risks to the economy. Monetary policy did not bring prosperity from the Great Depression, it did not undo the stagflation of the 1970s, it did not undo the lost decade in Japan and it will not likely create jobs now.

The Fed can — and should — conduct policy to promote financial stability, inhibit excessive risk-taking and foster low inflation.

This will do more to improve the economy than continuing monetary policy that appears to have done little to promote recovery.